Insurance, Landlords and the Law
Would you expect to be fined tens of thousands of pounds for doing the right thing? Nor should you! But it does happen to the best of landlords – read on to find out why and how to avoid it!
Your tenant is about to move in – congratulations. You have a deposit from them, correctly secured in an approved tenancy deposit scheme (as required by law). This will normally be around one month’s rent, and not much more (you can legally take no more than 6 weeks worth). Your thoughts should now be turning to what is the correct type of insurance for your circumstances. As with all financial products, you should seek expert advice before selecting the insurance that is right for you, but below is a brief guide to some of the things you should be considering. The main policies to consider are:
3. Rent Guarantee/loss of earnings
4. Assistance in repossession of your home in the event that the tenancy agreement is breached
Although some of the above are optional, you’re legally required to have a minimum level of insurance. In this case buildings cover would be the minimum. It’s possible that the property you are going to be renting was recently your own home, or that of a family member, but it is important to understand that you need to either get a new quote for landlords’ insurance, or inform your current insurer of the change in circumstances – if you do not, they may refuse to pay out in the event of a claim.
You don’t need to insure the tenant’s contents, although if you have left any furniture or white goods as part of the rental agreement, you may wish to consider content’s cover for those, as you’d be expected to replace them if they became damaged or broken. Many of the big insurance companies will have a landlords policy, but it can be worth finding a firm who specialise in that area, as the cover is often both cheaper and more comprehensive. A good lettings agent should be able to recommend a reliable provider who they work with at a discount rate.
Consider the level of cover you will need carefully, as this can affect your premium significantly. The rebuild cost of your home can be far lower than it’s market value, so it is worth getting a good estimate. For a fee, a surveyor will come to your home and make a recommendation on it’s rebuild cost, if it were to burn down or collapse, but you can also get a fair estimate online by using the free calculator provided by the Royal Institute of Chartered Surveyors.
It is also possible to get insurance to cover problems with your rent. This could be useful if your tenant does fall behind on their payments, making sure that you are not out of pocket until they are able to catch up. Many such policies are available, but the cover can vary widely, so please check the small print to ensure that you are properly covered. These policies are typically marketed as Rent Guarantees or Rent Insurance.
Now to think about the Law….
Common sense and natural justice may not have any bearing on the outcome if you should find yourself in court on a property related manner. For example consider this case, based on a real event:
Mr ‘Smith’ inherited a property when an elderly family member passed away, and decided to rent it out rather than sell. Some modernising works were carried out, and the home contents were removed. A skip had been hired to help dispose of the waste from the renovations, and a move in date was agreed with the new tenant. Unfortunately, the skip had not been removed from the driveway by the time the tenant moved in, but this had been discussed and agreed that it would be gone the following morning. So no problems then? Except for the old armchair, which was on top of the skip. Now the landlord knew that older furnishings do not meet modern fire regulations, and must not be left in a let property, so he had thrown it in the skip. But after he left, the tenant saw a perfectly good armchair going to waste, and took it back inside the house without telling anyone. The skip was duly removed, and then some months later a stray cigarette on the armchair started a small fire. Luckily no one was seriously hurt, but the landlord was fined tens of thousands of pounds for providing the tenant with unsuitable furniture. Unfair? I think so, but the Judge decided that the tenant, upon accepting the keys, accepted dominion over all items within the boundary of the property – which included the skip and it’s contents. A devastating result for a landlord who had tried to do the right thing at every turn, but a great reminder to the rest of us to ensure that your property is correctly prepared for market and that you have appropriate legal cover as part of your landlords insurance. An experienced letting agent may also have been able to point out this problem ahead of time.
I wouldn’t expect anyone (unless they were a professional already dealing with such issues) to be on top of all the legal pitfalls and changes that can affect landlords. It’s one of the many reasons I am glad that my own office has the backing of a first class legal department to whom I can turn when I need advice, and who are constantly reviewing changes to the law and communicating the relevant parts to our clients. Common sense and good intentions are simply not sufficient protection when it comes to keeping yourself out of trouble on this one. Even letting to family members can be fraught with problems in the event of a disagreement, or the arrival of a new romantic partner to the picture. It is always best to have a proper tenancy agreement (and no, the free ones on the internet do not count!) to protect both parties in the event of a dispute.
A good letting agent can assist you with the day-to-day running of your property. A great lettings agent will have their eyes on the horizon and catch trouble long before you see it coming – those are the ones worth their weight in gold!
For any further information, or to hear about what might be on the horizon, please feel to get in touch with me and my team here at the Property Word and we will happily help you navigate the field safely.
Ross, Jasmine and Matt
Next week: Deposits and tenancy deposit schemes